Australia's Viva Energy said on Friday it plans to run its refinery beyond mid-2021, banking on government support for an industry battered by the COVID-19 pandemic and competition from much bigger Asian plants.
Viva is the only one of Australia's three remaining refiners to commit to staying open after Energy Minister Angus Taylor on Monday promised to accelerate payments to support the country's refineries by six months as part of a A$2.3 billion ($1.75 billion) package to shore up the industry.
In September, Viva had warned it might shut its Geelong refinery in the state of Victoria as the industry faced a dire outlook. It said on Friday it expects to report a loss of as much as A$99 million in refining this year.
Investors unhappy about keeping the plant open with shrinking profits and an average A$100 million a year in costs to sustain operations knocked Viva's shares down more than 5% in a broader market that fell 0.9%.
"I just don't see how refining can be seen to be a viable shareholder value-accretive proposition here, unless the government is prepared to hand out A$100 (million), A$150 million cash a year," Bank of America analyst David Errington said on an investor call.
Viva Chief Executive Scott Wyatt said the company has gained comfort on the plant's future from talks with the government and also its own view on refining margins, plant performance and capital costs.
"We would not continue refining unless we could be confident that we see a future where the earnings from refining, together with the package that the government provides, is sufficient to cover all of that cash and generate a positive cash contribution to the business," he told analysts.
Supply chain disruptions wrought by the pandemic have focused the government on shoring up fuel security, although refiners see little difference between importing oil for processing, as at present, and importing refined products.
Viva's plant could become Australia's last oil refiner. BP plc said it would shut its refinery, the country's biggest, in early 2021. Exxon Mobil Corp and Ampol Ltd have yet to commit to taking the government's aid.
($1 = 1.3156 Australian dollars)
(Reporting by Arundhati Dutta in Bengaluru; Editing by Anil D'Silva and Richard Pullin)
